A loan against property is a loan that allows you to pledge your property as collateral with a lender for a large loan sanction. Loans against property or mortgage loans are popular funding solutions because of their competitive interest rates and long-term tenors. Other loans that cannot compete with a Loan Against Property aren’t always cost-conscious and are expensive for most borrowers, given their interest rate and short repayment tenors.
Apart from the price point, another benefit of borrowing a loan against property is that borrowers can continue to use the pledged property while repaying the loan amount, and once the loan has been repaid in full, the ownership of the property is transferred back to the borrower.
Loans against property are lucrative because the funds that you receive do not have any usage restrictions and can be used for any purpose, such as overseas education, travel expenses, business expansion, debt consolidation or even wedding expenses. This is not the same for other types of loans, such as a home loan, where the funds you receive can only be utilised to purchase a house or a personal loan as there are limitations on how much you can borrow.
Even though there are many benefits and features of a loan against property that make it an attractive funding option, there are a few things you must watch out for. Being cautious of these factors will help you plan your loan application and requirements in a way that won’t jeopardize your repayment process.
What Should You Watch Out for When Applying for a Loan Against Property?
Applying for any loan has a degree of risk involved, which can be easily mitigated if the borrower is mindful of the following things:
Interest Rate:
Your loan against property interest rate is one of the most crucial factors to consider while applying, as it impacts how affordable or expensive your loan can be. Ensure that you meet the required eligibility parameters to benefit from the lender’s lowest interest rate offerings so you can save on your interest outflow.
Monthly Income:
Your monthly income determines your repayment capacity, and helps lenders assess your ability to repay the loan without defaulting. When making your loan application, ensure that the amount you request does not surpass your repayment capacity. Count additional sources of income, your fixed monthly income, and your fixed financial obligations at the time of making your loan against property application.
Property Location and Condition:
Your property’s location and condition are considered important factors upon which the loan value is determined. If your property is in a popular location, maintained well and new, lenders are more likely to extend a bigger loan amount to you at more competitive terms. In case you are no longer able to keep up with your EMI payments, your lender can choose to sell the collateral to recover the amount.
CIBIL Rating:
One’s CIBIL rating is a three-digit numeric value that is given based on their financial habits, repayment history and other important credit indicators. Any score between 800-900 is considered reliable, and you can rest assured that with such a rating, you will receive your loan against property at a low interest rate. Hence it is in your best interest to maintain a healthy CIBIL score to secure any loans for your expenses without any hassles.
EMI Capacity:
How much you can afford to bear as EMIs is another factor you must consider while making your loan application. If you are already paying other EMIs, you may want to opt for a longer repayment tenor that lets you make smaller EMI payments over a longer period. If you can pay bigger EMIs, you can save on your total interest and choose a shorter repayment tenor.
You can use an online loan against a property EMI calculator to check what EMI amount best suits your repayment capacity by providing your projected loan details.
Competitors:
Multiple lenders offer loans against properties at competitive interest rates. However, the onus lies on you to select a lender who meets your financial needs and is closest to meeting your budget. Ensure that you have diligently researched all the options available to you and approach lenders whose eligibility criteria you can meet and those who are most likely to meet your loan requirements.
Terms and Conditions:
At the time of approval, you will receive the terms and conditions of your loan, that include details such as the approved loan tenor, approved rate of interest, interest rate type, the approved loan amount, and approved monthly EMI. You must go over these terms and conditions as your property will be subjected to these.
Conclusion
When taking out a loan against property, it is important to be aware of the potential risks involved. Not understanding the terms of your loan agreement could lead to issues down the road, so make sure you understand what you are signing up for. Additionally, you must be mindful of the interest rates and fees associated with your loan as these can add up quickly if you're not careful. Finally, remember that your home is collateral for this loan, so if you default on payments you could lose your home.
With all of this in mind, taking out a loan against property can be a great way to get access to extra funds, but be sure to proceed with caution.
